The transformation of a town in Tuscany from a traditional stronghold of the Italian textile industry into a capital of cheap clothing is causing widespread discontent among locals who complain they are losing out to the Chinese on their own turf.

But the Chinese view the rapidly expanding fast-fashion market in Prato, a satellite town of fashionable Florence, as an opportunity for Italian companies to exploit the desirability of the "Made in Italy" brand in new ways.

According to Marco Landi, president of the Tuscany branch of trade body CNA, which represents small and medium-sized firms, the remaining 3,000 small-scale Italian enterprises in Prato's industrial district face unprecedented upheaval.

Italian companies can't compete on price, their strength lies in the area of aestheticsXu Lin, Chinese entrepreneur in Italy

"As a result of backdoor globalisation, Italian businesses are being forced to restructure," he says.

"At the moment there are approximately 4,000 Chinese-run clothing factories in Prato. These new production dynamics are compelling the remaining Italian businesses based there to rethink their markets."

'Can't compete'

The long thread of history connecting Prato with textiles stretches back to the 12th Century, when garment manufacturing was regulated by the wool merchants' guild.

Before the arrival of the Chinese, thousands of small Italian textile units were a source of cheap "Italian made" clothes, producing them on the side from Italian-made fabric - often with the help of hired Chinese workers.

But the Chinese have beaten the Italians at their own game by setting up their own businesses and driving down prices by importing far cheaper fabrics from China.

The Prato industrial zone now accounts for more than 30% of Italy's textile imports from China.

"More than half of Italian-owned businesses in the industrial zone have gone to the wall over the past decade," Mr Landi continues. "There are now more Chinese garment manufacturers than there are Italian textile producers."

The Chinese newcomers have opened up the market in mainland China in a way Italians never could. They are exporting millions of low-cost garments bearing the Made in Italy tag in a seemingly unregulated export drive. They have also notched up increased demand in Europe through cost-cutting.

But Xu Lin, a Chinese entrepreneur who set up Giupel, a clothing business, in Prato more than 10 years ago, believes that economic currents are set to favour Italian companies if they innovate and wake up to new opportunities.

"Italian companies can't compete on price, their strength lies in the area of aesthetics," he says.

"Italian textile companies have long outsourced the early stages of tissue production. But they have the traditional skills needed for the unique finishes and state-of-the art features that come at the end of the fabric production chain. The same is true of clothes."

'World leaders'

Prato still remains the world's fabric development leader - a sort of laboratory where future fabric trends are tested out.

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Xu Lin says that while Italian companies cannot compete on price, they have other advantages

Italian companies invest heavily in technological research producing innovative textiles for the couture end of the market.

Mr Xu believes that there is a burgeoning market back home not only for cheap apparel, but for the most expensive and refined Italian garments and fabrics.

"Hand-made in Tuscany is the best you can find," confirms Ermanno Scervino, one of Italy's top couture designers. "Its artisans are the most creative in the world and that is why my business is here in Florence and not in Milan or Paris."

Mr Scervino uses Tuscan specialist knowledge to produce original technological fabrics for each of his collections. He is planning to open shops in Shanghai and Beijing within the coming year.

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Chinese signs can be seen in Prato

The long hours put in by the Chinese in Prato are helping fill High Street chains such as Primark, H&M and Topshop in Europe with trendy, disposable fashion. But the Chinese have already raised their sights to the top end of the fashion market.

Lu Chen, a 24 year-old Chinese model living in Italy, says that young Chinese are studying at fashion schools in Italy in order to pick up the Italian design skills - the benchmark for international couture fashion .

"The Chinese really connect with the best quality Italian fashion and want to learn how to replicate that," she says.

Mr Xu says that he is already employing Italians as designers and in key factory positions.

"If the Chinese weren't in Prato and the clothes were made in mainland China instead, the Italians would be suffering far more," he says. "We have helped the Italians by ensuring the Made in Italy brand is ever more popular in China."

As Mr Scervino fits an exquisite leather and silk skirt in his Florentine studio on the tall and elegant Ms Lu, he expresses doubts that flair and chic can be taught in schools.

"You need to live in a country where beauty, art and craftsmanship have been treasured since the Renaissance," he says.

"It isn't something you can copy. I have Chinese customers in my shops around the world who want to buy Italian flair and handwork. It's unique and that is what wealthy people seek."